APRA and ASIC tell funds to prioritise liquidity for early release

1 April 2020

Superannuation fund trustees have been told that they need to give top priority to having sufficient liquid funds available to make early release superannuation payments.

Superannuation funds have received a joint letter from the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) which has reinforced the liquidity issue.

“One of the primary areas of regulatory focus over recent weeks has been monitoring liquidity to ensure funds retain the means to fulfil their payment obligations, including the early release of superannuation payments recently announced by the Government,” the letter said.

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“This must necessarily also be a top priority for trustees, who bear ultimate responsibility for maintaining sufficient levels of liquidity to sustain the operation of their funds.”

“Trustees should be:

• Undertaking regular and detailed liquidity stress testing, ensuring that scenarios reflect changes in future net cash flows of the RSE, member behaviour and market conditions;

• Identifying specific areas for heightened attention with respect to liquidity, such as increased member switching activity or deterioration in the liquidity profile of their investments, and taking appropriate action;

• Assessing the impact on liquidity of their liabilities and contractual commitments, such as currency hedging programs, and reviewing their securities lending arrangements. Trustees should also ensure that the valuation of unlisted and illiquid assets remains appropriate and consider whether any assets need to be revalued”

The letter then goes on to confirm the two regulators have taken a different regulatory approach.

“In order to help trustees focus their resources and attention on responding to the impact of COVID-19, both ASIC and APRA are postponing a range of new and planned regulatory initiatives. While the priorities of both regulators and trustees must inevitably shift during this period, unless ASIC or APRA has granted specific relief, trustees’ legal, regulatory and reporting obligations remain unchanged,” it said.

“Trustees must therefore ensure key business activities, such as administration, are operationally resilient to ensure ongoing processing of member benefits. Trustees should be scenario testing their critical functions and determining (in conjunction with outsourced providers) essential staffing levels and contingency plans to ensure essential member transactions proceed in a timely manner, particularly where such activities are undertaken offshore.”

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I would really like to see the compare the pair advertisements roll out with a twist. Compare the risk. While over 40% of industry superannuation chiefs have used direct property, joint venture projects and infrastructure as part as both defensive and growth investments they may have some issues with liquidity thus exposing their real risk. With the run of the market created by fear and greed caused by the dishonesty of Chinese Communist Party as well as Russia's stupidity in cranking up oil production, they may be in some strife. A very sad situation for those forced to access their superannuation funds as a last resort.

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